Mumbai Capital

Tough lessons: even in an enthusiastic market, an IPO’s quality, price matter


Unlisted firms looking to go public must consider the tepid response to several recent IPOs by institutional buyers

he primary market has seen a sudden spurt in enthusiasm in the past few months, with the flurry of initial public offers (IPOs) in the recent past encouraging many unlisted entities to go public in expectation of a similarly strong response from investors.

However, the tepid institutional response to some recent IPOs has given companies a hard lesson: quality and pricing of the issue do matter.

The IPO of Infibeam Incorporation, touted as the first e-commerce entity to go public in India, closed on Wednesday with the institutional portion of the offer remaining undersubscribed. According to data on the National Stock Exchange (NSE) website, the institutional portion was subscribed 0.86 times even as the overall issue was subscribed 1.11 times.

Incidentally, Infibeam is the first IPO of the current calendar year that saw its institutional portion not fully subscribed. Similarly, the institutional portion of the Bharat Wire Ropes IPO that closed on Tuesday just about managed to get fully subscribed, at 1.01 times.

Interestingly, both IPOs saw the rest of the segments — non-institutional and retail — getting fully subscribed even as institutional investors proved to be a tough nut to crack. Investment bankers say this could serve as an alarm bell for companies looking to unveil their IPOs in the near future as they would need to be more cautious with pricing and valuations of the offer.

“It is quite common for companies to try and take advantage of an overall positive wave in the primary market. The recent instances showed that investors are not going to gobble up whatever is offered to them. Institutional investors are an informed lot and companies need to respect that,” said an investment banker who worked on one of the recent IPOs.

A lukewarm response from institutional investors is often looked upon as a sign of weak fundamentals and low prospects post-listing, though there have been exceptions in the past.

Some of the other IPOs that hit the market in 2016 saw a strong response from all categories of investors, including institutional, a category that comprises foreign institutional investors, mutual funds, insurance companies and banks among others.

The IPO of TeamLease Services saw its institutional portion getting subscribed nearly 27 times. Both Healthcare Global Enterprises and Precision Camshafts saw the segment being subscribed more than two times each. Six IPOs have been unveiled in 2016, and more are lined up for the coming months.

The overall IPO pipeline looks strong as data from Prime Database, a primary market tracker, shows more than 25 companies are ready with the regulatory approval to unveil their public issues. The combined value of such offerings is almost Rs 12,500 crore. The regulatory approval given by the Securities and Exchange Board of India (SEBI) is valid for one year from the date of approval.

Larger IPOs waiting to enter the capital market include L&T Infotech (Rs 2,000 crore), AGS Transact Technologies (Rs 1,350 crore), Mahanagar Gas (Rs 1,200 crore), Ujjivan Financial Services (Rs 800 crore), Equitas Holdings (Rs 750 crore), Nuziveedu Seeds (Rs 700 crore), Paranjape Schemes (Rs 600 crore), GVR Infra Projects (Rs 500 crore) and Matrix Cellular Services (Rs 500 crore).

A lukewarm response from institutional investors is often looked upon as a sign of weak fundamentals

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Printable version | Jan 29, 2020 2:22:18 PM |

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